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"The most important thing linking Russia to the global market is the low expectations," Jim O'Neill, chairman of Goldman Sachs Asset Management and investment guru, told a recent conference of VTB Capital in London. "I get at least an email a day telling me to take the 'R' out of BRIC and I take them as a reverse indicator: the more of these emails there are, the less Russia has to do to surprise everyone."

O'Neill - who coined the term BRIC about a decade ago as a marketing term for the opportunities to be found in Brazil, Russia, India and China - remains upbeat about Russia's prospects and gave the country's detractors a stinging rebuke for what he calls judgements that are "narrow and mired in personal interpretation" more than in fact.

Russian stocks have been punished more than most since the financial meltdown in 2008 and are currently trading at a 50% discount to their emerging market peers. And since panic began sweeping the market again in the wake of Greece's failure to elect a new government in the first half of May, the market has been punished again, seeing more investors exit than any other major emerging market. Yet the economy is doing surprisingly well. "In the first quarter of this year, Russia was the only BRIC to put in a positive surprise with its 4.9% growth [against the official forecast of 3% of this year]. All the sell-side analysts ended up revising up their forecasts for the year. In Europe, growth was slow and the UK underperformed even that. Russia once again was exceeding expectations."

Russia's economy remains fundamentally strong, sporting some of the best macroeconomic numbers in the world. O'Neill says the task for Russia to continue to surprise is simple. "All Russia has to do is not have a crisis," says O'Neill without irony, as Russia has suffered about six crises of varying severity in the last two decades. "What people don't appreciate is the size and importance of the economy. If Russia has no crisis, then it will contribute more to the global economy in dollar terms than the entire European Union combined."

Hopeful indicators

Goldman tracks emerging market countries using 18 indicators covering the gamut of business life, and here too Russia can surprise. "Russia is not the weakest overall, India is the weakest," says O'Neill. "Of course, Russia is very bad on several counts, including the rule of law and corruption. But on other things like technology and schooling, it is number one. Somehow, Russia needs to keep being best at these and get better at the others."

And this is the hope for the new government that was officially appointed by President Vladimir Putin on May 21. O'Neill laid out three goals the new administration needs to achieve: diversify away from oil, improve the corporate rule of law (especially in the context of privatisation), and finish capital market reforms. "There are some good faces in the new cabinet. [Deputy Prime Minister for Industry and Energy] Arkady Dvorkovich is a natural reformer and the plan to create an international financial centre won't happen unless the things I listed happen."

Still, O'Neill was critical of the government's attitude to oil prices and the heavy spending the state is engaged in now that requires an oil price on the order of $120 for the budget to break even. "Russia needs a budget that assumes prices [of oil] will fall, otherwise it will confront its main danger - crisis," says O'Neill.

Finally, O'Neill was also upbeat on the long-term potential of Russia's growth. The demographic problems have been often cited as one of the most crippling of Russia's difficulties. Indeed, GDP growth is predicted to slow to under 3% by 2050 due the shrinking size of the population. "This means that diversification and increasing productivity in Russia is very important," says O'Neill. "But one of the best things that has happened in the Putin decade is the demographics are improving. Male life expectancy has gone from 59 years to about 65 due to the policies to reduce the life-threatening consumption of alcohol. If this continues, then there is a real possibility of an upside shock to our projections."

Ironically, the next crisis that Russia will have to face will probably not be of Russia's own making for once. O'Neill says that June will be a crucial month for the entire global economy. "If the EU financial authorities can't manage with greater success the situation, then it will affect everyone, including Russia," warns O'Neill. "Russian growth was unexpectedly strong in the first quarter, while the opposite was true in the UK. It says a lot about the underlying economic situation in the two countries. Countries need to make sure that the things they have control over are robust in preparation for what comes next as what else can you do?"